The US president does not like a strong dollar or a Federal Reserve intent on raising interest rates.

The dollar index has risen more than 7 per cent from its February low, and while Donald Trump’s jawboning weighed on the currency late last week, it looks set to extend its rally given the robust pace of US growth versus the rest of the world.

While the dollar index remains 8 per cent below its late 2016 peak that followed the election of Mr Trump, the cost of borrowing has risen a great deal. Over that time period, three-month dollar Libor has more than doubled from 1 per cent to 2.34 per cent. That hurts borrowers, hence the rising tide of financial pain across indebted emerging market countries and companies.

Add to this mix, escalating trade tension — with the US president declaring he is ready to impose tariffs on all $500bn of Chinese imports— and commodities flagging weaker demand, further risk aversion among investors will also benefit the dollar. As EPFR notes, during the third week of July, US equity and bond funds attracted $6bn.

Mr Trump is also very unhappy about a weakening renminbi, which has been the worst-performing EM currency over the past month, down 4.6 per cent.

China’s currency has topped the Rmb6.8 a dollar mark, its weakest level in a year, reflecting slower growth and tighter credit that has triggered a slide in prices of industrial metals and in general knocked sentiment across EM and among miners.

Analysts at Morgan Stanley note any sense of Chinese equities stabilising — the CSI 300 has bounced a touch from its early July nadir — could well help the renminbi, “in turn blunting the broader US dollar rally” and ease the pressure across EM currencies.

The risk for investors is that further renminbi depreciation spurs a further drop in commodity prices and fans deflationary concerns — the kind of macro shock with the capacity to really damage many portfolios.

Divergence between US credit and equities

Since early May, US investment grade credit has been range bound while the S&P 500 has managed to climb back above 2,800, a level last seen in early February.

The iShares LQD exchange trade fund tracking US IG debt is off nearly 5 per cent for the year, while the S&P 500 has gained 4.9 per cent, marking a notable divergence in terms of performance between these asset classes.

Analysts at Bank of America Merrill Lynch believe “the most important driver of credit market underperformance is the shift in US monetary policy from quantitative easing — QE — toward quantitative tightening — QT”. They said this would only become a bigger issue for investors over the coming months: “We consider the wider credit spreads an early indicator of more struggles to come as the level of global monetary policy accommodation declines in coming years.’’

Beyond credit’s flashing amber light, equity investors have other reasons for questioning the longevity of the ageing bull run.

The robust performance of the S&P 500 owes plenty to the narrow leadership of large tech names. A look at the major S&P 11 sectors shows tech and consumer discretionary — which is skewed by large gains for Netflix, Amazon and TripAdvisor alongside the likes of traditional retailers such as Macy’s and UnderArmour — are both up in the region of 15 per cent this year. In contrast, only healthcare, up 5 per cent and energy, up 4 per cent, are in positive territory for the year.

Such narrow leadership in equities suggests Wall Street is in the process of carving out a top. A key question for equity bulls is whether earnings season, which kicks into a higher gear over the next three weeks and stronger second-quarter data — with Q2 GDP on Friday expected to show an annualised rise of 4 per cent — can ignite a broader-based rally.

British Prime Minister Theresa May, U.S. President Trump and NATO Secretary-General Jens Stoltenberg listen to Belgian Prime Minister Charles Michel speak during a NATO summit in Brussels on May 25, 2017.

Marvin Loh, senior global market strategist at BNY Mellon, noted that while “the narrow nature of overall gains is a warning sign… gains have been more widespread recently, a positive for further gains if earnings exceed their already high expectations”.